What is behind the drop in unemployment in Brazil?

When the subject is job, the old glass-half-full or glass-half-empty speech is inevitable. There is never complete satisfaction. Still, the job market in Brazil continues to surprise.

Unemployment andended the first quarter of 2024 at 7.9% of the workforce, a better number than the market was expecting. It is also the lowest level for the period since 2014, points out the IBGE.

Despite the decline in employment compared to the previous quarter, as a result of the seasonal effect of the layoff of temporary workers at the end of the year and the increase in job search at the beginning of each year, this result indicates a certain resilience in the Brazilian labor market.

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Among the favorable factors are the reduction in the number of unemployed, which at the beginning of 2024 was 8.6% lower compared to the same period in 2023, with 808 thousand fewer people; and the 36% growth in the creation of vacancies in the formal market in the first three months of this year, in the annual comparison, as shown by data from the General Register of Employed and Unemployed (Caged) released this week by Ministry of Labour.

The advancement of economic activity, in itself, is part of the explanation. But it is necessary to add the effect of the revolution that the job market is going through, which has also contributed to reducing unemployment. At the same time as replace or even eliminate human work, new technologies they also create occupations. Demographic factors, some flexibility in work relations and the lack of specialized workforce in this energy transition they also add new colors to this scenario.

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“These transformation processes in the labor market contribute to reducing the neutral unemployment rate, the one that does not accelerate inflation, which intensified here following the approval of the labor reform. This helps to illustrate why we have a strong job market and unemployment that could fall even further in the short term”, he explains. Cosmo Donato, economist at LCA Consultores.

There are those who argue that part of the solidity of the labor market is due to the increase in the pejotization process, which hires workers as legal entities in order to reduce labor costs. However, as the researcher at the Institute of Applied Economic Research (IPEA) Maria Andreia Lameirasthe current trend is driven more by formal employment than by self-employment via legal entities, which is also growing.

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“CLT employment is advancing, with an increase in real average income. There is no magic, the Brazilian economy is showing good results and this directly impacts the job market.”

The average income of employed people increased in this first quarter, reaching R$3,123 – an increase of 1.5% in relation to the immediately previous quarter and 4.0% in the annual comparison. A factor that has also been generating surprise among analysts.

Although, due to the half-empty glass effect, the Lula government Don’t celebrate this improvement, there are internal and external issues that can bring this cycle down. A fiscal target reviewfor example, raises doubts about the government’s commitment to the health of public accounts. And this can reduce staff hiring. /WITH PABLO SANTANA